Lin-gang Special Area Aspires to Become a "global hub" - 2022-08-31
"This is the hub of the world, and a small move here can produce a global effect," said President Peter Foo Moo Tan of UOB (China) at the recent conference on promoting emerging finance in the Lin-gang Special Area of the China (Shanghai) Free Trade Zone. A Singaporean, he used a well-known Chinese proverb, obviously after thought for a while, to describe the future influence of the Lin-gang Special Area. Next month, UOB’s business outlet at Dishui Lake will be officially opened for business, making UOB the first foreign bank to settle in Lin-gang.
Before that, UOB had already launched a number of first businesses in the Lin-gang Special Area. Last year, UOB (China) helped InnoVen Capital, a leading venture bond investor in Asia, to set up its first China fund in Lin-gang in the form of QFLP. In March this year, as one of the major participating banks, UOB promoted the successful landing of Shanghai's first sustainable development-linked international syndicated loan in Lin-gang.
Since its inauguration, the Lin-gang Special Area has benchmarked itself against the highest standards and the highest level in the industry, carried out more vigorous stress tests, established an institutional open system with "five freedoms and one facilitation (namely freedom of investment, freedom of transportation, freedom of trade, freedom of capital flow and freedom of employment, and investment and trade facilitation)" as the core, and striven to build itself into a special economic functional zone with greater influence and competitiveness in the international market. In the past three years, Lin-gang has taken spearheaded breakthroughs in multiple key areas.
Dishui Lake Financial Bay: another “Lujiazui” in the making
"The English name of this area is not the Lin-gang New Area as many would have thought, but the Lin-gang Special Area, which shows that Lin-gang will not be not a simple spatial expansion of the China (Shanghai) Pilot Free Trade Zone or a mere translation of existing policies. Rather, it represents a deeper, broader and more intensive all-round opening-up at a higher level." According to the relevant person in charge of the Administrative Committee of the Lin-gang Special Area, Lin-gang has established a total of 87 innovative cases in the three years since its establishment, and half of these cases are closely related to financial and trade innovation. In terms of serving the real economy, enhancing resource allocation capacity and participating in international economic governance, the Lin-gang Special Area has accomplished great achievements.
In December 2019, the first wealth management joint venture in China settled in the Lin-gang Special Area. In August 2020, the first cross-border capital pool business was launched. Through two cooperative banks, Lingang Group successfully introduced $100 million of overseas financing funds. As Lingang Group substantially reduces overall financing costs, multinational companies have seen the bright prospects of setting up fund management centers in Lin-gang. In June 2021, the Joint Cross-Border Financial Studio of the Lin-gang Special Area was launched. The head of the Financial and Trade Department of the Administrative Committee of the Lin-gang Special Area said that as the regulatory authorities sometimes are not sure about which innovation oath to follow, the joint studio will serve as a bridge for communication and a channel for cooperation between market entities and the regulatory authorities, so as to accurately meet enterprises’ business needs in cross-border operations.
In Israel, SIPG once encountered the difficult issue of carrying out urgent centralized management of its overseas funds. Fortunately, at the beginning of this year, the Shanghai Branch of the State Administration of Foreign Exchange introduced 9 capital account reform measures and 4 current account facilitation measures, including expanding the scope of use of capital account incomes. The head of SIPG’s Asset Finance Department points that the pilot local and foreign currency integrated fund pool and the raised cross-border loan limit have broadened financing channels for SIPG, while enabling the company to further control foreign exchange risks. Currently, SIPG’s automatic equipment is operating at Haifa’s new port round the clock. Local media have given their praise, "Haifa’s new port well lives up to its reputation as one of the most advanced ports in the world. It has substantially improved the Israeli port industry in respect of automation, operational efficiency, energy conservation and environmental protection, and customer service. It has effectively smoothed local logistics and supply chains and brought a new passageway connecting Shanghai."
Behind the blowout growth of innovation cases is the powerful support of systems and policies. The successive rollout of The Implementation Opinions of the Lin-gang Special Area on Further Promoting the High-Quality Development of the Service Industry which focus on top-level design, Some Measures for Comprehensively Promoting the Financial Opening-up and Innovative Development of the Lin-gang Special Area which aim to implement specific supporting policies, and The Action Plan for Accelerating the Development of Emerging Financial Industries in the Lin-Gang Special Area which targets differentiated development are all aimed at the fields of free investment and free capital flows, thus representing big breakthroughs and significant practical moves.
On the day when the first batch of “50 financial measures” was released, 9 financial institutions, including the Big 5 banks (ICBC, ABC, BOC, CCC and BOCOMM), as well as Shanghai Pudong Development Bank, Bank of Shanghai, Shanghai Rural Commercial Bank and China Pacific Insurance Group signed a property purchase agreement with the Administrative Committee of the Lin-gang Special Area, and will build their new office buildings in the Dishui Lake Financial Bay. This represents the enthusiastic responses of financial institutions to the innovative financial policies offered by the Lin-gang Special Area, showcasing the immense appeal of the policies. The Dishui Lake Financial Bay currently under construction will become a financial city comparable to Shanghai’s financial hub Lujiazui, but with complementary and collaborative development between the two.
Well playing “two special cards”
On many occasions, leaders of the Administrative Committee of the Lin-gang Special Area have mentioned the need for Lin-gang to well play “two special cards”. One card is its status as a "special economic functional zone", and the other is its status as the only "special comprehensive bonded zone" in China. In May 2020, the first phase of the Yangshan Special Comprehensive Bonded Zone passed acceptance inspection and was officially inaugurated. In January last year, the second phase also passed acceptance inspection, which marked the completion of the whole bonded zone.
Since then, a series of innovative achievements have been accomplished by the Yangshan Special Comprehensive Bonded Zone: the customs supervision system has been innovated, with the establishment of an all-new regime of customs supervision over entry and exit which is characterized by full clearance at the front line of control, one-side declaration at the second line of control, and no account books created within the zone. Leveraging the Yangshan Special Comprehensive Bonded Zone, the Lin-gang Special Area has also cultivated new industries and new business formats such as China’s large aircraft industry; and a global bulk commodity distribution base, an international trade distribution hub and other innovative businesses have been successively launched, and new offshore international trade has doubled year by year.
In June last year, the “Xin Lian Yun Gang” ship and a group of 48 ships successfully registered "China Yangshan Port" as their hailing port. According to the Administrative Provisions of the Lin-gang Special Area on the Registration of International Ships, qualified ships in Lin-gang can apply for international ship registration, not subject to the restriction that the fund contribution of Chinese investors shall not be less than 50%. Since then, multiple international shipping companies have started to pay attention to the international ship registration with "China Yangshan Port" and told the Shanghai Maritime Safety Administration about their intentions to enter Lin-gang and transfer their ship registration.
Yangshan has also made policy breakthroughs regarding coastal piggyback and bonded LNG ship-to-ship refueling for the first time. Ding Songbing, General Manager of SIPG’s Strategic Research Department suggested that the Administrative Committee of the Lin-gang Special Area may also gradually improve the "last mile" of the implementation rules, saying that "If it can allow carrying capacity sharing within the liner alliance according to the innovative international transit regulatory mode, Lin-gang will be able to further expand the supply of shipping space, improve transit efficiency and reduce the cost of enterprises."
The preferential tax policies of the special bonded zone to support the development of logistics and warehousing enterprises have also been implemented. For the first electronic ordinary invoice issued by Shanghai Integrated Logistics Management Co., Ltd. which was exempted from value-added tax on logistics and warehousing services in the Yangshan Special Comprehensive Bonded Zone, a tax reduction and exemption of RMB 110,000 was received.
For market entities, any policy that can truly save them money is the most beneficial one. The general manager of a pharmaceutical device and raw material supply company disclosed that it took him only one day from submitting application documents to obtaining a business license in Lin-gang. Thanks to the preferential policies of the Lin-gang Special Area and the special comprehensive bonded zone, the company can save about $4 million each year from import to sales. In 2020 when the international situation was complex and changeable, its business actually grew by over 30% despite the bulk of its business transactions was related to foreign trade. "Without Lin-gang, we would have to move our business to Singapore," admitted the general manager.
Becoming the “main battlefield” for building Pudong into a leading area for socialist modernization
The preferential tax policy is not limited to the Yangshan Special Comprehensive Bonded Zone. Earlier last year, the 15% enterprise income tax policy for key industries as specified in the Master Plan of the Lin-gang Special Area was officially implemented. In the fourth quarter of 2020 alone, two enterprises eligible for the preferential policy in Lin-gang benefitted from a total tax deduction of RMB 76.1 million. SEOT, a newly established IC company, has also applied for tax reduction. General Manager Tian Guang remarked that for a start-up like SEOT with heavy R&D investments, any saving in funds will reap "returns a thousand times bigger" in the future.
In fact, Shanghai already implements a policy of tax reduction and exemption for high-tech enterprises, but the eligibility requirements, including length of establishment, business performance and other aspects, are quite high, which practically keep newly established market entities at bay. Targeting those companies that have the potential to become high-tech enterprises, the Lin-gang Special Area offers assistance in the starting stages when they need support most. In addition, successfully certified high-tech companies all have passed expert review and other procedures, which stand as a strong endorsement of their corporate competency. After SEOT made to the high-tech enterprise exposure list, two venture capital companies immediately approved their investments in the company, and more investors followed suit. It can be seen that the tax policy can also enhance recognition among investors and play the ingenious role of a lever.
The preferential pilot policy of Lin-gang has now been promoted in more parts of Pudong. The release of Opinions of the Central Committee of the Communist Party of China and the State Council on Supporting the High-Level Reform and Opening up of Pudong New Area and Building It into a Leading Area for Socialist Modernization (hereinafter referred to as the “Opinions”) issued earlier called for summing up the implementation experience in the Lin-gang Special Area and considering the levy of enterprise income tax at a reduced rate of 15% within 5 years from the date of establishment on qualified enterprises engaged in production, R&D and other core links in such key fields as IC, AI, biomedicine and civil aviation in specific parts of Pudong.
Not only this policy, all other pilot policies from the “test ground” will have the value for promotion and implementation after they have achieved certain results. According to the Opinions, the Lin-gang Special Area should benchmark itself against the highest standards and the highest level, carry out more vigorous stress tests, take the lead in making breakthroughs in several key areas, and promote the implementation of relevant achievements in Pudong after the conditions are met; and support the application of the policies of the Yangshan Special Comprehensive Bonded Zone in specific qualified areas under special customs supervision in Pudong.
Wang Zhen, Vice President of the Shanghai Academy of Social Sciences, believes that the Lin-gang Special Area will become the "main battlefield" for building Pudong into a leading area for socialist modernization, while the release of the Opinions has also brought opportunities for pilot institutional innovations in the development of Lin-gang.
Once institutional innovations are in place, implementation work must be "refined" and "quick". The Lin-gang Special Area has already rolled out the "version 2.0" of many of its policies. Released in August last year, Some Opinions on Supporting the Independent Development, Reform and Innovation of the Lin-gang Special Area of the China (Shanghai) Pilot Free Trade Zones take application scenarios as the orientation and aim to higher precision. At the same time, the Administrative Committee of the Lin-gang Special Area, industrial parks and other parties all have reached a consensus and formed a joint force that the policies should be implemented more quickly and cases should be worked out more quickly, so as to produce the demonstrative effect. "Only concrete successful cases can convince those people who are still on the watching line."
The interviewee is Wang Zhen, Vice President of the Shanghai Academy of Social Sciences.
Source: Shanghai Observer
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